Australia’s industrial relations system is one of the most ­centralised in the Western world. It has been for most of the time since the establishment of the Commonwealth of Australia in 1901. Only on rare occasions in a century have governments, Labor or Coalition, seen fit to ­challenge the system.

In the early 1990s, following Labor’s ­victory in the March 1993 election,
Paul Keating
introduced enterprise bargaining to provide greater flexibility within the system. He did so in the aftermath of a serious recession and high unemployment.

After the 1996 election,
John Howard
and Peter Reith embarked on further decentralisation of industrial relations including the introduction of new individual statutory agreements. Then in the mid-2000s, following John Howard’s substantial win in the October 2004 election, the Coalition introduced the ill-fated Work Choices legislation.

The focus was on easing unfair dismissals regulation, increasing the role of individual agreements and further limiting compulsory arbitration.

One of the political difficulties with the Work Choices reforms turns on the fact that they came about at a time when Australia’s economy was strong and unemployment relatively low. In short, Work Choices was not seen as resolving a current problem – a fact which made it difficult to sell to the electorate. Contrary to the mythology, Work Choices did not dismantle the centralised system – which explains why the Fair Work legislation, which replaced it, was implemented so readily. Most of the legislative infrastructure that supported a centralised industrial tribunal making binding award decisions remained on the statute books. Moreover, the Work Choices Act ran for hundreds of pages – and its numerous sections must have been regulating something. It had more to do with moving the focus of regulation – from arbitration to bargaining – than with deregulation.

Indeed, there is a strong argument that the Howard government’s use of the ­corporations’ power of the Constitution to implement Work Choices buttressed the eventual resurgence of centralisation by extending the reach of the federal award system as the default for workplaces across the country.

Debunking and dismantling

Labor’s commitment to abandon ­Work Choices was central to
Kevin Rudd
’s landslide victory in November 2007. The task was undertaken by the deputy prime ­minister
Julia Gillard
in her capacity as ­minister for employment and workplace relations.

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The Rudd-Gillard changes, as embodied in the Fair Work Act, had the effect not only of junking Work Choices but also of dismantling many of the earlier Howard reforms and some of the Keating reforms, built as they were on the ethos that the role of centralised wage fixing should diminish and focus largely on a safety net.

Despite increased recognition of collective bargaining, industrial relations in Australia is now more centralised and regulated than it was a quarter of a century ago. This is despite the fact that the Australian economy is more diverse, more reliant on small business growth and operating in a more competitive global marketplace.

Two facts illustrate the point.

In the 1990s, around a third of awards in Australia came within the ambit of the old Commonwealth Conciliation and Arbitration Commission. By 2010, the relevant ­figure for Fair Work Australia (FWA) – later renamed the Fair Work Commission – was close to 90 per cent.

Secondly, between 1992 and 2012 the ­proportion of employees who were trade union members fell from around 40 per cent to 18 per cent – with the proportion in the ­private sector workforce down to around 13 per cent (chart 1).

Yet courtesy of privileges embedded in the system, the ACTU can now claim that unions negotiate on behalf of some 60 per cent of the workforce. Thus the institutional sway of the union movement has been preserved (and in some cases enhanced) even while trade union membership has declined dramatically.

In short, the Fair Work Act has revived the power of the trade union movement, the award system and the Commonwealth’s industrial tribunal in the form of the Fair Work Commission.

A familiar system

In 1990, the system was characterised by one centralised tier of regulation – the compulsory award arbitration system. Now there are three layers of centralised regulation – centralised legislative standards, ­centralised arbitrated awards and nationally regulated collective bargaining.

As academic Andrew Stewart’s guide to the current industrial relations system, Stewart’s Guide to Employment Law (Federation Press, 2013), notes, the Fair Work ­Commission has taken on virtually all the institutional trappings of its immediate predecessor, the Australian Industrial Relations Commission (AIRC).

“It has a president, deputy presidents and commissioners, and [from 2013] two vice-presidents as well. There are still full benches of [usually] three members to hear appeals from decisions given by single ­members. Importantly too, FWA’s initial members in 2009 were drawn from the AIRC."

Writing in 2009, [editor-in-chief of The Australian Financial Review] Michael Stutchbury made the additional point that the members of the most recent Commonwealth “umpire" worked out of the same offices as the old AIRC, while the website contained the AIRC’s annual reports and even the Richard Kirby archives of the tribunal’s 105-year history (The Australian, July 7, 2009).

Then there is the Fair Work Ombudsman (FWO), the compliance branch of the ­system. All told, around 300 Fair Work inspectors have powers to enter workplaces, investigate breaches and launch prosecutions. As Andrew Stewart notes, since its inception the FWO “has been an extremely active and visible agency, among other things conducting campaigns that target particular industries or issues and that often involve auditing selected employers".

Today, support for centralised industrial relations is an article of faith throughout much of Australia. However, Minister for Employment
Eric Abetz
has restated Prime Minister
Tony Abbott
’s commitment to initiate a Productivity Commission review of the industrial relations system – with a view to taking findings which it might make to the election scheduled for late 2016. In other words, industrial relations is on the political agenda for this parliamentary term – albeit only if major change may be ­implemented in the Coalition’s subsequent term, if it is re-elected.

In interviews for this monograph, it was apparent that the likes of Justice Iain Ross, president of the Fair Work Commission, and president of the ACTU Ged Kearney regard Australia’s centralised industrial relations system as the best available. Neither sees the need for reform. It is not so much an attitude of complacency but rather the affirmation of faith which they acquired early in life and which they continue to attest today.

Neither believes that the existing system might be counterproductive by leading to higher levels of unemployment and under-employment.

Both regard Australia’s labour market laws, regulations and institutions as operating primarily for societal benefit, immune from unintended adverse consequences for employment, productivity and hence growth in living standards.

Mark Latham
led Labor to a disastrous defeat in the October 2004 election. John Howard joined Bob Hawke as a four-time winner, only exceeded by Robert Menzies – who won seven elections between 1949 and 1963.

The Coalition’s strong performance in the Senate vote, particularly in Queensland, meant that it would obtain a Senate majority as of July 1, 2005. This made the introduction of Work Choices possible.

John Howard had taken the issue of reforming the unfair dismissals law to the 2004 campaign. But, in the area of industrial relations, that was about it.

However, following the surprise result, there was a feeling within the Liberal Party room that the Howard government should not do what Malcolm Fraser did, or rather did not do. The Fraser government had a Senate majority from the time of its election in December 1975 until 1 July 1981.

There was and remains a view within the Liberal Party that Malcolm Fraser did not do enough with the mandate obtained during his first two terms.

When John Howard took his Work Choices concept to cabinet in the wake of the 2004 election, he was at the height of his personal authority. Only two cabinet ministers expressed concern at the wisdom of the proposed reforms, namely Tony Abbott (then the minister for health) and Kevin Andrews (then minister for employment and workplace relations).

In the event, Work Choices was approved by the cabinet and Abbott and Andrews went into collective responsibility mode. Some, like Abbott and Andrews, privately believed that Work Choices would upset some employees for no substantial gain. There were other critics, from a different perspective. Ray Evans, founder of the H R Nicholls Society, believed that Work Choices was too regulatory. And then there was the trade union movement which presented Work Choices as an attack on workers’ rights and used it to rally its depleting base.

The Coalition’s defeat in November 2007 had a searing impact on the Liberal Party and the Nationals. Both resolved not to introduce substantial legislation after an election for which it had not received a mandate during a campaign – especially if the legislation could be presented as adversely affecting living standards. Hence the reluctance of the Abbott government to attempt wide-scale industrial relations reform after its 2013 victory in which it sought a limited mandate with respect to industrial relations.

The most controversial part of Work Choices turned on dropping the no-disadvantage test. This meant that industrial agreements could be made between employers and employees where the latter consented to the reduction of some rights – often after a bargain over other rights. The no-disadvantage test was part of the Howard government’s Workplace Relations Act 1996 – reforming legislation which followed the Keating government’s 1993 amendments to the Industrial Relations Act 1988.

The political reaction to the dropping of the no-disadvantage test was such that it was replaced in May 2007 with a new “fairness test". This meant that Work Choices in its original form applied only for just over a year.

A decade ago, the Industrial Relations Club was discredited. Now it’s back – its influence possibly enhanced by the greater centralisation of industrial relations following Work Choices legislation.

In his role as workplace relations minister,
Bill Shorten
did much to re-establish the powers of the Fair Work Commission along with the privileges of the trade union movement.

It is likely that, in opposition, Labor will oppose any industrial relations reforms which have reduce the influence of trade unions.

John Howard introduced Work Choices without a compelling reason. It’s possible that Tony Abbott may be compelled to act on industrial relations reform if unemployment and underemployment remain acute problems in some parts of Australia. It would make sense for the Abbott government to take up the cause of the labour market outsiders, because we know the Industrial Relations Club will not.

A recent suggestion by
Maurice Newman
, chairman of the Prime Minister’s Business Advisory Council, that Australian wages are high by international standards engendered publicity and criticism.

Notably, no such outrage emerged when Ross Garnaut, a consultant to the Rudd-Gillard governments and senior economic adviser to prime minister Bob Hawke from 1983 to 1985, made a comment not too dissimilar. In his book Dog Days: Australia after the Boom (Black Inc, 2013), Garnaut writes:

“Minimum wages of unskilled workers, high by international standards in the 1990s, are further out of line with other countries now. At the exchange rates of early 2013 they were twice what minimum wages are in the United States and one and a half times those of European countries with similar systems. While high minimum wages raise the incomes of low-income working households in which there is no unemployment, at Australian levels they discourage employment of unskilled people.

“This has not been a large problem through the boom, but it will be more and more important in the harder times ahead, because high minimum wages inhibit growth in jobs for workers on the edge of the labour force."

Garnaut does not want a low-wage Australia. Nor should he. It’s just that he recognises that Australian industries have to be competitive.

In the first decade of the 20th century, Australia adopted a “protection all round" approach, whereby industries which paid higher wages and provided better conditions than their competitors were protected by tariffs and quotas while employees were protected from competition by cheap Asian labour.

Today, levels of protection in Australia are low by international standards and there is a non-discriminatory immigration policy in place. What’s more, the currency floats on world markets.

To remain globally competitive, Australian industries and firms must be flexible. Yet, over the past six years, Australia’s industrial relations system has been re-regulated, trade union rights have been enhanced and the Industrial Relations Club – the members of which have scant economic expertise and virtually no business experience – has been restored to its previous glory.

In such an environment, the most prosperous businesses and the better qualified and educated employees will survive well enough. So will those in public sector employment.

However, unskilled workers in marginal private sector jobs – including young Australians – are often the victims of the unintended consequences of decisions by members of the Industrial Relations Club.

The Abbott government is unlikely to disband the IR Club any time soon. But there is good reason to pursue the debate about the most suitable industrial relations framework for Australia – not merely with respect to wages but, more importantly, with respect to conditions and rules of work imposed by all kinds of regulations.

The Industrial Relations Club has returned – but its ethos can and should be challenged and its tenure need not be permanent.